Clever use of the equity available in your home loan can prove to be a very valuable wealth generation tool and here are a few ways in which best to use that home loan equity.
By using the equity in your home loan to purchase a vehicle, you could be saving as much as 4% in interest payments but it is important to pay the instalment amount as if you had financed the vehicle at the higher rate over a shorter period. By doing it this way you are saving a lot of money on your vehicle purchase but, if you do not pay what would have been the car payment it will end up costing you a whole lot more. Discipline is the key here, do not use you bond to make a vehicle affordable over the period of your bond.
In a similar fashion, by using the equity in your bond to repay credit card debt and paying the usual credit card payment amount directly into your bond you will again be saving a lot of interest. Credit cards attract the highest interest rate of most short term lending so it is important to be very careful with your credit card once the debt has been paid off from your bond. Never over extend yourself again on your card, only use the amount you are able to pay in full at the end of every month and pay the debt reduction instalment directly into your bond and you will again be saving a large sum of money in interest payment.
By increasing the excesses on your home and vehicle insurance you can dramatically reduce your premiums and in the event of a claim, you could easily withdraw money from your bond to finance the excess if required. The key to this strategy is to ensure that you drive carefully and live in a secure manner. Insurance is meant to be for unusual happenings but today it is often seen by people as an item replacement option, hence the high instances of insurance fraud in South Africa. Drive a little slower, never drive drunk and be vigilant around your home and you will save yourself a fortune in insurance payments with this strategy.
Make it your goal to repay your loans as quickly as possible to reduce interest amounts and ensure that you are well versed in the early settlement penalties that some institutions put on early settlement.
One thing to be very aware of is that South African banks require that in order to settle your home loan before the end of the term you as the bond holder are required to give them 3 months notice of settlement. By way of example, if you are selling your home, you must give the bank written notice of your intention to settle your home loan 3 months before the expected settlement date. If you do not settle the home loan in the 3 month period you are again required to give notice of home loan settlement. Never assume anything when it come to South African banks, call your bankers and get the answers before you do anything out of the ordinary, it could save you a lot of money.